Former Arkansas Gov. Mike Huckabee had the crowd cheering at the first GOP debate over his pledge to tax the seedy underground economy of “illegals, pimps, prostitutes, [and] drug dealers.”
But actually implementing the system he supports might not be so easy.
Huckabee is part of a group of conservative Republicans who support a national sales tax known as the “fair tax.” The idea behind it is pretty simple: fair tax supporters want to stop taxing people based on how much they earn and institute a national retail sales tax. But there is little support in Congress for upending the Tax Code and economists are split on whether a national sales tax could work.
Fair Tax supporters, or “fair taxers” as they like to call themselves, argue the system is a simpler, fairer way to make sure people keep their whole paychecks and only pay taxes on the goods they consume.
“The people who get wages is declining dramatically,” Huckabee said in the debate.
A sales tax, he argued, would tax them anyway.
Several of Huckabee’s rivals also back versions of a consumption tax — including the 10 percent flat tax suggested by Ben Carson, and a more comprehensive system supported by Sen. Marco Rubio (R-Fla.).
Curtis Dubay, a tax expert at the conservative Heritage Foundation that doesn’t support any specific proposal, said that like any tax system, each proposal has complicating factors, but Huckabee’s plan would be tough to enforce.
“I think it would be very difficult to administer a national sales tax,” Dubay said. “You can get the same result with a flat tax.”
Critics argue such a system would put a much higher tax burden on low-income earners and would ultimately fail to do a better job of taxing people who earn money outside of the traditional economy. It would also be extremely difficult for Congress to approve, and would require lawmakers to completely ditch the current Tax Code.
William Gale, an economics expert at the Brookings Institution, said it’s a common misconception that a national retail sales tax would do a better job of taxing the seedy underbelly of the off-the-books economy.
“Under an income tax, the income generated by working in the criminal world is not taxed. But under a consumption tax, the consumption of criminal world goods isn’t taxed,” Gale said. “There’s no change in the net burden.”
Huckabee states the fair tax would even out other inequities such as lower tax rates on capital gains and dividends and other commonly maligned loopholes for the rich.
The national retail sales tax is just one of several different ways of implementing a consumption tax. While each one would have the effect of eliminating income taxes, they all would be administered differently, said Dubay.
Huckabee’s proposal is backed by Americans for Fair Taxation, a registered political non-profit that was established in 1995.
The group has created a Fair Tax toolbox on its website to promote legislation in the House and Senate, but so far no measures have come up for a vote. The Senate version has just seven co-sponsors, including GOP presidential candidate Sen. Ted Cruz (R-Texas). The House version has just over 70 sponsors.